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Old 06-26-2007, 02:01 PM   #1
Specop 007
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Default Is overtime taxed at a different rate then regular time?

Lets say you work 60 hours in a week. Will the 20 hours of overtime be taxed at a different rate then what the standard 40 hours are taxed at? I've heard some people say its not worth it to work overtime cause it all goes to the tax man. Is there any truth to that?
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Old 06-26-2007, 02:02 PM   #2
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Default Is overtime taxed at a different rate then regular time?

The man just borrows it, and will probably give it back at the end of year.
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Old 06-26-2007, 02:03 PM   #3
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Default Is overtime taxed at a different rate then regular time?

It will be witheld at a higher rate during the year, but when you file your return it is taxed exactly the same. Income tax is based on your total for the year not on weekly peaks and valleys.
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Old 06-26-2007, 02:04 PM   #4
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Default Is overtime taxed at a different rate then regular time?

I wonder the same thing. I think it's just the perception of diminishing returns. If I work an extra 8 hours it feels like a lot more work than 8 hours and when the paycheck only shows my hourly rate x 8, it seems barely worth it.
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Old 06-26-2007, 02:04 PM   #5
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Default Is overtime taxed at a different rate then regular time?

Quote:
Originally posted by: DaveSimmons
It will be witheld at a higher rate during the year, but when you file your return it is taxed exactly the same. Income tax is based on your total for the year not on weekly peaks and valleys.
That makes sense. Is it withheld at a higher rate then regular time, and do you know by how much?

Thanks
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Old 06-26-2007, 02:06 PM   #6
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Default Is overtime taxed at a different rate then regular time?

I don't get it. Why would it be withheld at a higher rate?
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Old 06-26-2007, 02:09 PM   #7
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Default Is overtime taxed at a different rate then regular time?

Quote:
Originally posted by: torpid
I don't get it. Why would it be withheld at a higher rate?
Because it is witheld at the rate assuming you make that much every week for the entire year.

It's straight highway robbery in my book. Burns me up to see 40.5% just lopped off.
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Old 06-26-2007, 02:11 PM   #8
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Default Is overtime taxed at a different rate then regular time?

Quote:
Originally posted by: Specop 007
That makes sense. Is it withheld at a higher rate then regular time, and do you know by how much?
It depends: the higher rate is based on what your taxes would be if you made that much every week. So if you made an extra $500 in overtime one week, it's taxed as if you were going to make $26,000 more for the year.

You also pay all the other taxes/contributions too (state, social security) so it could be 40-50%. You do get some of it back at the end of the year though.
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Old 06-26-2007, 02:11 PM   #9
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Default Is overtime taxed at a different rate then regular time?

Quote:
Originally posted by: spidey07
<div class="FTQUOTE"><begin quote>Originally posted by: torpid
I don't get it. Why would it be withheld at a higher rate?</end quote></div>

Because it is witheld at the rate assuming you make that much every week for the entire year.

It's straight highway robbery in my book. Burns me up to see 40.5% just lopped off.
Oh right... you mean if you normally are under $75k but your overtime makes it look like you would make over $75k, suddenly you are withheld at a higher tax bracket? If it's not a different tax bracket then I don't get it. If I'm in the same tax bracket then it should be the same % as long as I don't go over the bracket.
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Old 06-26-2007, 02:13 PM   #10
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Default Is overtime taxed at a different rate then regular time?

Quote:
Originally posted by: DaveSimmons
<div class="FTQUOTE"><begin quote>Originally posted by: Specop 007
That makes sense. Is it withheld at a higher rate then regular time, and do you know by how much?</end quote></div>
It depends: the higher rate is based on what your taxes would be if you made that much every week. So if you made an extra $500 in overtime one week, it's taxed as if you were going to make $26,000 more for the year.

You also pay all the other taxes/contributions too (state, social security) so it could be 40-50%. You do get some of it back at the end of the year though.
The higher your total wages for the pay period, the more tax you'll have withheld. The overtime itself is not taxed at a different rate. Your gross taxable income is the basis for calculating the tax withheld.
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Old 06-26-2007, 02:24 PM   #11
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Default Is overtime taxed at a different rate then regular time?

Quote:
Originally posted by: torpid

Quote:
Originally posted by: spidey07

Quote:
Originally posted by: torpid

I don't get it. Why would it be withheld at a higher rate?
Because it is withheld at the rate assuming you make that much every week for the entire year.

It's straight highway robbery in my book. Burns me up to see 40.5% just lopped off.
Oh right... you mean if you normally are under $75k but your overtime makes it look like you would make over $75k, suddenly you are withheld at a higher tax bracket? If it's not a different tax bracket then I don't get it. If I'm in the same tax bracket then it should be the same % as long as I don't go over the bracket.
It is not the tax bracket - it is the amount being taxed extrapolated as for the complete year.

If your normal income is $52K - assuming $25/hr
If you get time and half for 10 extra hours that is an extra $375.
$375 added to $1K is 1375.

Your tax rate for that paycheck is now based on 1375 * 52 (71.5K - expecting that you could be getting the 10/hr OT every week for the full year).

This new rate applies to your Federal and State. It does not affect the SS.

At the end of the tax year, if you did not average the 10 hrs/wk OT, then you will have had more tax than needed withheld and you may be due a refund on the excess.

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Old 06-26-2007, 02:31 PM   #12
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Default Is overtime taxed at a different rate then regular time?

Tax rates, you can see how you could move into a different bracket.

$0-$7,825 10% of the amount over $0

$7,825-$31,850 $782.50 plus 15% of the amount over 7,825
$31,850-$77,100 $4,386.25 plus 25% of the amount over 31,850
$77,100-$160,850 $15,698.75 plus 28% of the amount over 77,100
$160,850-$349,700 $39,148.75 plus 33% of the amount over 160,850
$349,700-no limit $101,469.25 plus 35% of the amount over 349,700
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Old 06-26-2007, 02:31 PM   #13
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Default Is overtime taxed at a different rate then regular time?

^^^^^^ Tax brackets vary based on status: single, married, dependents, etc. Those look very high for anything but a 'family'. Someone filing single caps out somewhere around $90K I believe.

<div class="FTQUOTE"><begin quote>Originally posted by: torpid
I don't get it. Why would it be withheld at a higher rate?</end quote></div>

If you normally get paid $25/hr and work 40h/wk then you're making $1000/wk, or $52K in a year. That places a single person squarely in the ~30% tax bracket.

If you work an additional 20 hours one week, and you get time and a half, that's an additional $750, bringing your weekly total to $1750. If you extrapolate that over the course of a year, you're yearly take would be $91K and as a single person you would then find yourself in the highest tax bracket (~35%).

That's why. The weekly government 'take' is based on the projection of your yearly income based on that one paycheck. At least that's the best way I can think of why it varies.
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Old 06-26-2007, 02:32 PM   #14
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Default Is overtime taxed at a different rate then regular time?

Quote:
Originally posted by: EagleKeeper
<div class="FTQUOTE"><begin quote>Originally posted by: torpid

<div class="FTQUOTE"><begin quote>Originally posted by: spidey07

<div class="FTQUOTE"><begin quote>Originally posted by: torpid

I don't get it. Why would it be withheld at a higher rate?</end quote></div>

Because it is withheld at the rate assuming you make that much every week for the entire year.

It's straight highway robbery in my book. Burns me up to see 40.5% just lopped off.</end quote></div>

Oh right... you mean if you normally are under $75k but your overtime makes it look like you would make over $75k, suddenly you are withheld at a higher tax bracket? If it's not a different tax bracket then I don't get it. If I'm in the same tax bracket then it should be the same % as long as I don't go over the bracket.</end quote></div>

It is not the tax bracket - it is the amount being taxed extrapolated as for the complete year.

If your normal income is $52K - assuming $25/hr
If you get time and half for 10 extra hours that is an extra $375.
$375 added to $1K is 1375.

Your tax rate for that paycheck is now based on 1375 * 52 (71.5K - expecting that you could be getting the 10/hr OT every week for the full year).

This new rate applies to your Federal and State. It does not affect the SS.

At the end of the tax year, if you did not average the 10 hrs/wk OT, then you will have had more tax than needed withheld and you may be due a refund on the excess.
So actually the higher withholding amount is calculated on all hours for the pay period equally, not just for the hours that are overtime.
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Old 06-26-2007, 02:33 PM   #15
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Default Is overtime taxed at a different rate then regular time?

I did the calculations above where $52k and $71k are in the same bracket... indeed the rate is 2% higher since there is the 25% over $30,000 part. But if you break into a new bracket, it's a much higher difference.
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Old 06-26-2007, 02:34 PM   #16
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Default Is overtime taxed at a different rate then regular time?

Quote:
Originally posted by: torpid
Oh right... you mean if you normally are under $75k but your overtime makes it look like you would make over $75k, suddenly you are withheld at a higher tax bracket? If it's not a different tax bracket then I don't get it. If I'm in the same tax bracket then it should be the same % as long as I don't go over the bracket.
Remember that only amounts in a higher bracket are taxed at a higher rate.

If you made $50K taxed at X% and your salary/wages increase to $75K, the first $50K is still taxed exactly the same. Only the extra $25K is taxed at a higher % rate.

When people say something like "I know a guy whose salary went up but it put him into a higher bracket so he made less" they are wrong, and just spreading an urban legend.

Only really low income people can be (sort of) affected this way, by now making too much to qualify for some welfare they were getting.

Edit: rock salt
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Old 06-26-2007, 02:35 PM   #17
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Default Is overtime taxed at a different rate then regular time?

It is taxed the same.

What happens in any payroll system is that your paycheck is annualized based on your pay frequency. So the more you make in a given cycle, the higher bracket you are in and the more taxes will be taken out. If it's really a lot of OT or you are receiving a bonus, you can request or the payroll administrators may automatically change your pay frequency for that check to put you in a lower bracket.
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